Inmet rejects First Quantum takeover bid

Inmet rejects First Quantum takeover bid

TORONTO — First Quantum Minerals Ltd. has offered $4.9-billion for Inmet Mining Corp. in a bold attempt to get its hands on Cobre Panama, one of the largest mining development projects underway anywhere in the world.

The move puts Inmet’s immediate future into question, as the company is now in play and senior copper miners are certain to take a closer look at Cobre Panama.

Toronto-based Inmet owns 80% of Cobre Panama, and it is a monster. The project holds 32 billion pounds of copper reserves and nine million ounces of gold reserves (along with huge inferred resources), and has a likely mine life of more than 30 years. It also comes with enormous risk: The current cost estimate is US$6.2-billion, and Panama has no history of large-scale mining.

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Construction of Cobre Panama has just started, and analysts suggested that if First Quantum has its own development plan for the mine, it needs to get in quickly. First Quantum is recognized for having a strong technical team.

“I see a fit in the sense that [First Quantum] management has been very experienced in building four grassroots projects on time and within reasonable budgets, and also operating in what I would call politically sensitive areas in Central Africa,” said John Hughes, an analyst at Desjardins Securities. “I think they would certainly bring to the table the management wherewithal to progress Cobre Panama.”

First Quantum has already made two private pitches to Inmet. On Oct. 28, it made an offer of $62.50 a share. Inmet quickly rejected it, and First Quantum returned on Nov. 25 with a cash-and-stock bid of $70 a share, or $4.9-billion. Inmet turned that one down as well, saying it is “highly conditional.”

The fact that Inmet finally decided to make the bids public — while also adopting a shareholder rights plan — suggests it thinks a formal offer could be coming soon, analysts said.

Inmet has been looking to bring an additional partner into Cobre Panama to share the risk and the costs. First Quantum’s offer indicates it has no interest in being a minority partner, and would rather run the project itself.

If First Quantum does follow through with a hostile bid, experts are not convinced there will be an intense bidding war. This has been a very slow year for M&A in the copper space, as companies have cut spending and focused on preserving their balance sheets. The short list of potential suitors for Inmet includes Teck Resources Ltd., Freeport-McMoRan Copper & Gold Inc., and state-controlled firms from Asia.

But even though there has been little M&A this year, the rationale is as strong as ever. Major copper projects such as Cobre Panama are getting larger, more expensive and more complex, and bigger companies with more scale are in a stronger position to bring them into production. A First Quantum-Inmet deal would bring the combined company firmly into the big leagues in the copper sector.

Investors appear to be skeptical about a deal as well. Inmet shares closed Wednesday at $62, up 17% on the day but well below the $70 offer price from First Quantum.

Both companies have plenty of M&A experience. First Quantum has a history of acquiring projects at an early stage and creating value by building and operating them extremely well. And Inmet was in the middle of a wild takeover battle last year that involved five different companies. Inmet tried to complete a friendly merger with Lundin Mining Corp., but the deal fell apart when Equinox Minerals Ltd. made a hostile bid for Lundin. Barrick Gold Corp. eventually bought Equinox for $7.3-billion.

Equinox was advised by Goldman Sachs. According to a report, Goldman is also advising First Quantum.

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